Q2. In class we have derived the CAPM Equation, which is where E(R) Expected return on a security i Rf Risk-free rate = Beta of the security i E(Rm) Expected return of the market. a) Propose a testable equation of CAPM. b) In most of the historical cases CAPM does not hold. Provide a statistical condition such that CAPM hold in practice (hint: use a regression equation) Q2. In class we have derived the CAPM Equation, which is where E(R) Expected return on a security i Rf Risk-free rate = Beta of the security i E(Rm) Expected return of the market. a) Propose a testable equation of CAPM. b) In most of the historical cases CAPM does not hold. Provide a statistical condition such that CAPM hold in practice (hint: use a regression equation)